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Jan 3, 201212:00 AMMad @ Mgmt

with Walter Simson

Tazy crazy

Tazy crazy

Mad @ Mgmt addresses the concerns of middle-market companies, including banking, family and succession issues, turnarounds and performance improvement, and economic life in general. Walter Simson is founder and principal of Ventor Consulting, a firm dedicated to middle market companies.

This is a story about my landlord. Well, not my landlord. My client’s. You see, I was appointed to help a company in receivership one autumn. Receivership is a procedure similar to Chapter 11 that makes company assets available to the secured lenders for sale or disposal in order to pay off the debt.

A big problem for the company had always been very high rent expense. The dollars were huge, given the company’s size. And there were large arrears at the time the company went into receivership. On the second day of the receivership, I prepared a check for the amount that the company could pay and made an appointment with the landlord. The purpose of the meeting was to notify him of the bad news about receivership. I also told them the amount that I felt the company could pay, and if they agreed, I would pass along a check in that amount for the current month.

I also suggested that we could squeeze the company into less space so that the landlord could re-demise and find a subtenant.

In the following months, we prepared a reduced-rent check by the 25th of the month and hand-delivered it on the 27th of the month prior to the rental month. They were all cashed. We also invited the landlord’s representatives to inspect the premises. The re-demising never took place.

I thought we had a good relationship. But after a while, the landlord would hand-deliver demand letters for arrears.

Then, we learned why. A locksmith truck, a couple of rent-a-cop cars, and the landlord’s staff congregated in the parking lot. I made two mistakes that day, and the first one was: I opened the door.

“We’re here to get your people out of the building. We’re taking possession and changing the locks,” the landlord said.

“No, you’re not,” I said. So he struggled to move me out of the doorway.

When that didn’t work, he motioned to a rent-a-cop. “You get him,” the landlord said. And the rent-a-cop advances on me, with his hand on a funny contraption on his belt. It looked like a Star Wars toy, with copper notches in a futuristic black plastic housing. It was loosely holstered in the guy’s grip. What was it? It wasn’t exactly a gun .... Then I realized.

A Taser.

“One more step,” I said to the rent-a-cop, “it’s assault.” I turned to a company employee and said, “Call the police.” I stayed in the doorway.

When the police arrived, the landlord made his case.

“This man owes me money ... the rent hasn’t been paid for many months ... our agreement permits me to enter at will ... the locks should not have been changed ... I do this all the time.”

Then it was my turn: “I do not owe the money, I am just a consultant ... the company is in receivership and rent has been paid on time at an agreed upon reduced rate ... the locks were changed by the bank for security reasons ... the landlord has been given several tours of the premises and agreed that we were good stewards ... no legal proceeding has been called, much less adjudicated, on any eviction ....”

The police officers were extremely impressive in their negotiating and facilitation. They forged an agreement that the receivership estate would leave the premises in 30 days, we would hand over a check for a part of the rental arrears, and we would continue the landlord’s inspection routine.

I believe that both parties left the negotiation satisfied with the outcome but nevertheless certain of their opening positions. However, my over-coffee discussions with lawyers in the field resulted in highly variable judgments – more than I expected.

So what do you think? Was the agreement a fair one? Or should one party or another have prevailed?

Oh, and the second mistake of the day was my telling the story to my wife (the tale possibly embellished to heighten my own derring-do). Her reaction: “Oh, for goodness’ sake, why didn’t you just let the man in?”

To this day, that question leaves my speechless.

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